News / Maersk investment will help harvest the 'low-hanging fruit' of ship efficiency

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Mærsk’s planned retrofit of some 200 of its 389 chartered-in vessels will challenge a well-known stalemate that has prevented action in the shipping industry for decades: the split-incentive.

Shipowners can invest to improve ship performance, but only the charterer sees the benefit of lower fuel costs and reduced emissions. Likewise, charterers have been reticent to invest to improve another company’s asset, even though it would provide operational benefits for themselves. Mærsk’s decision will benefit 50 other shipowners.

New propellers and bulbous bows are among the best-known and easiest performance tweaks, but even minor alterations can have an extraordinary effect on how well a ship moves through the water.

The gains are much more drastic for the more adventurous shipping lines. For example, this year, in a move that expected to bring down their fuel consumption by half, two ro-ro cargo vessels, Trans Hav and Trans Sol, are being remodelled at Western Shiprepair in Lithuania, adding rotor sails and a new weather deck with 1,600 sq metres of solar panels to each vessel. Not only will the vessels gain wind propulsion and a new renewable energy source, but will also increase deck capacity into the bargain, compounding the efficiency gains per cargo unit.

Mærsk is, likewise, providing part-funding for projects to increase cargo capacity of existing chartered-in vessels. But a lack of capital for these ambitious retrofits is holding the industry back, according to financiers. For their part, banks could offer financing for ship retrofits – but are incentivised not to do so, leaving the “low-hanging fruit” of ship efficiency to wither on the vine, explained Nikos Petrakakos, MD of Tufton Investment Management.

“The way it’s structured, a retrofit … becomes part of the senior mortgage for the lender, meaning your existing bank needs to extend extra financing,” he told The Loadstar, “which if you’re talking about anything more than half a million dollars, the banks aren’t going to bother with, because it’s too expensive to change.

“You cannot have someone finance it externally. It’s not like in aviation where you can finance an engine in itself.”

To make it possible to access external finance for retrofits, he explained, “to say you can finance different parts you install on a ship, separately … would change the way every single lending document is done. You would really have to change the entire global finance.

Banks are not investing in hydrogen ships [and] block the innovative stuff. Not by their own choice – they are stuck in limbo.”

“More creative solutions” would be needed to realise the existing fleet’s proper potential, Mr Petrakakos explained, in the face of a serious shortfall of available zero-emission fuels.

“Unless we do everything we can on fuel efficiency, we’re never going to get where we need to be on [new fuels],” he said. “We will need a lot more fuels than we have, and their cost will be significantly higher.

This makes Mærsk’s decision to part-finance a way through the deadlock a significant one, attempting to improve its own operations by investing in a way that will ultimately go towards improving the assets of other shipowners.